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After 'Very Difficult' Fundraising, March Capital Oversubscribes its New Fund to Double Down on Enterprise
The new year is continuing where 2020 left off, with more L.A. venture firms raising big funds.
Santa Monica-based March Capital announced Thursday it has closed its third fund, a $450 million vehicle to double down on the firm's focus on enterprise software companies in artificial intelligence, industrial technology, cybersecurity, financial technology and cloud infrastructure.
After being spread too thin in Fund I, the firm has been using a higher conviction model to focus on bigger investments in fewer startups.
"We tried to do too much in Fund I," said founder and Managing Partner Jamie Montgomery, who started the firm with Jim Armstrong, Gregory Milken and Sumant Mandal in 2014. "We simplified our strategy in Fund II. We raised the quality bar and only partner with entrepreneurs that are unafraid to tackle large markets and we doubled-down with conviction in our portfolio companies that were breaking out."
Already four of the firm's investments in Fund III are follow-on capital to existing portfolio companies, including CarTrade, an online auto classifieds platform, Uniphore, an AI customer service solution, and ASAPP, a conversational AI technology company.
Though the fund ended up being oversubscribed, raising nearly half a billion dollars during the pandemic was no easy task.
"It was very difficult," Montgomery said. "Many investors want to meet in person and many investors are concerned about valuations and about the inherent volatility in the economy."
Montgomery says the firm benefited from its previous track record, especially highly lucrative early bets it made on the cybersecurity company CrowdStrike.
As dot.LA reported last month, March Capital invested $26.5 million in the company's Series D round in 2017 at a post money valuation of $1.02 billion and another $39.7 million in the Series E financing in 2018 at a $3.35 billion post money valuation. When CrowdStrike went public in 2019 at a $6.69 billion valuation, March Capital not only held onto most of its shares, but added to its stake. After the run up in CrowdStrike's stock price, March Capital has reaped a return on paper of over $1 billion.
"We are fortunate that March Capital I is a top-quartile performing fund and March Capital II is a top-decile performing fund," Montgomery said.
But even with those hits, Montgomery still had to convince investors to come aboard a third time.
"We had done a global tour in late 2019 and early 2020 and hosted hundreds of investors at events in New York, London, Zurich, Melbourne and Los Angeles before COVID hit," Montgomery said. We then launched a virtual series in April tailored for our investors. We suspended fundraising in March and restarted in July. We had literally hundreds of virtual meetings during the last six months of 2020."
LPs in Fund III include local and global family offices as well as several sovereign wealth funds.
"We have 100% retention of investors from Fund II to Fund III and we added a number of new relationships in Europe, Australia and other markets," Montgomery said. "It is important to keep your investors happy but also refresh them over time."
Two-time entrepreneur Wes Nichols and India-based Rajan Mehra have come aboard as new partners for Fund III. They join existing partner Jed Leidheiser and co-managing partner Milken, who leads the March Gaming investment fund.
March Capital also announced the creation of the March Capital Foundation, which will allocate 1% of the firm's profit to address homelessness, hunger and community health.
If you were trying to close your new venture fund in the spring, you probably had a lot of sleepless nights and frantic Zoom meetings as limited partners tried to shore up their existing portfolios amidst Wall Street turmoil.
But after the initial shock from coronavirus wore off and public markets sharply rebounded, 2020 turned out to be a great year to raise a new fund, with the major caveat that you are well-established and raising lots of capital.
Bigger was definitely better.
U.S. venture capital funds raised a record $69.1 billion in 2020, according to Pitchbook data. And there were 14 mega-funds that hauled in $1 billion or more, the most since 2010.
Those included a pair of $4.5 billion mega-funds that Silicon Valley firm Andreessen Horowitz announced in November and a $1.8 billion vehicle Lightspeed, another Valley firm, closed in April.
But while the total amount of capital hit new highs, it was raised by far fewer firms. Smaller firms that back early-stage startups are having a much harder time fundraising.
Los Angeles is known for those smaller funds, but despite headwinds, 2020 saw some standouts.
B Capital Group closed a $822 million second fund in June with Boston Consulting Group (BCG) taking the lead as anchor investor. It was more than twice as big as the firm's $360 million debut fund.
B Capital Group was founded in 2014 by Facebook co-founder Eduardo Saverin, who's based in Singapore, and Raj Ganguly, a former BCG investor who resides in Manhattan Beach.
In November, Sinai Capital Partners announced the close of its $600 million second fund, $500 million of which will go towards the tech-focused Sinai Ventures and the rest to fund movies and television shows at New Slate Ventures. All the capital comes from a reclusive German billionaire.
The firm is run by Jordan Fudge, who stands out in the overwhelmingly white and older world of VC because he is Black, openly gay and only 28-years old. With the most recent raise, he now presides over nearly a billion dollars in capital.
Westlake Village BioPartners, the two-year-old firm focusing on life science and therapeutic companies, announced this month it has raised two new funds with $500 million in dry powder.
Last month, March Capital closed a $365 million third fund, according to SEC filings. The Santa Monica venture firm focusing on enterprise software was founded by Jim Armstrong, Jamie Montgomery, Gregory Milken and Sumant Mandal in 2014.
The firm has reaped a billion dollar-plus paper return on the 6.8 million shares it holds in the cybersecurity company CrowdStrike.
Data from Pitchbook and dot.LA. Lead art by Candice Navi.
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CrowdStrike shares surged more than 13% Thursday after the Sunnyvale-based cybersecurity company once again reported blockbuster earnings. The stock is now up 184% this year, eclipsing the 38% gain for the rest of the Nasdaq.
CrowdStrike's blistering performance is a big win for March Capital, the Santa Monica venture firm focusing on enterprise software founded by Jim Armstrong, Jamie Montgomery, Gregory Milken and Sumant Mandal in 2014.
March Capital invested $26.5 million in the company's Series D round in 2017 at a post money valuation of $1.02 billion and another $39.7 million in the Series E financing in 2018 at a $3.35 billion post money valuation.
When CrowdStrike went public in 2019 at a $6.69 billion valuation, March Capital not only held onto most of its shares, but added to its stake.
After the run up in CrowdStrike's stock price, March Capital has reaped a return on paper of over $1 billion on its 6.8 million shares. CrowdStrike's market cap is now over $35 billion.
"For a new fund, it's a great way to start things," said founder and Managing Partner Jamie Montgomery. "It's hard to top that."
The windfall – on paper for now – illustrates how VCs can score big returns for their investors even if only a single company in their portfolio scores a home run.
However, Montgomery said that is not the case with his fund, which he pointed out has eight other breakouts in its portfolio of 36 companies including ASAPP, Forter, Uniphore, and Earnin as well as BillDesk and CarTrade in India.
The firm also boasts exits such as the cloud-delivered SD-WAN company VeloCloud, which was acquired by VMware in 2017, and TeleSign, a security company acquired by BICS the same year.
March Capital recently closed a $365 million Fund III, according to SEC filings.
Montgomery first met CrowdStrike co-founder and CEO George Kurtz when he was founder and CEO of Irvine-based Foundstone, an early cybersecurity company that was acquired by McAfee in 2004. After six years as a senior executive at McAfee, Kurtz co-founded CrowdStrike in 2011 in Orange County. (CrowdStrike moved its headquarters to Sunnyvale in 2017.)
"He wanted to be the Salesforce of security," Montgomery said. "George had a vision of a cloud-centric world and the need for a cloud native cyber platform. We embraced the vision and he recruited an outstanding team and executed to perfection."
Kurtz attended Montgomery's annual Santa Monica tech conference, the Montgomery Summit, and the two kept in touch over the years until Kurtz offered Montgomery the chance to lead CrowdStrike's Series C financing. Montgomery was dealing with a family issue at the time and had to turn down getting in even earlier at a $700 million post money valuation in a round ultimately led by Google Capital. But he stayed close with Kurtz and participated in the Series D led by Accel two years later.
"We were fortunate enough at CrowdStrike to be able to pick our investors and it was important for me to work with people who added value and I trusted," said Kurtz. "Jamie has all of those. He's one of the rare gems in the venture world."
"He's been a great supporter and we've been able to make him and his limited partners a great return," Kurtz added.
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